Agree or Disagree, Why?

Question: https://managerialecon.blogspot.com/2019/05/why-are-there-so-few-unicorns-in-europe.html

Mention 3 important things that the chapters cover in the context of this story. Remember that government regulations that require compliance do impact the industries in the short run as well as the long run and those that have the ability to offset their costs (they are big companies to begin with) are able to flourish whereas newer companies face added costs which makes it harder for them to succeed.

Answer: In this interesting blog, the author talks about why the EU produces only few unicorns when compared to the US. This is due to the regulatory burden.

As discussed in the textbook chapters 9 and 10 (Froeb 2016), industries with high barriers are attractive because it is difficult for competitors to enter the industry. In fact, governments through protection regulations can be an entry barrier. For instance, in pharmaceutical industry, patents serve as big barriers for drugs manufacturers, and at the same time it gives royalty to the inventor which is important for drug discovery and development. This bring backs to our week 1 discussion about the greed while setting up competitive vs excessive prices for new drugs. However, at the same time too much regulation can lead to slow sales growth. The price erosion can be due to insurance companies and government policies forcing pharmaceutical companies to accept lower payment (Smith 2016). Therefore, there is a balance between health of individuals, money requirement to run a pharmaceutical industry, and greed. It is understood that some pharmaceutical companies focus more on drug discovery, while others focus on bulk manufacturing.

The other aspect about pharmaceutical industry is it provides a sustainable competitive advantage because some of the new medicines are difficult to be produced by other firms. If a firm adopts a product differentiation strategy then there is decreased elasticity demand, which will cause an increase in price (Froeb 2016). The Fig 10.2 in the book illustrates that there is 25% profitability in pharmaceutical industry (Froeb 2016), and historically it is a successful one (Smith 2016).

References:

Froeb, L., & McCann, B. (2016).Managerial Economics: A Problem Solving Approach,4^thedition. Cengage.

Smith, B.D. (2016) The Future of Pharma: Evolutionary Threats and Opportunities.1^stedition.Routledge.